Probably of the most problematic heritage of Keynesian economics is the belief that politics can influence social parameters by intervening in artificial isolated areas of human action. If you want to stimulate investment, intervene to reduce interest rates. If you want to preserve a certain level of aggregate employment, intervene by subsidizing big companies in financial difficulties. If you want to raise aggregate workers' income, intervene to raise educational levels to qualify workers for better jobs. Politicians love this kind of advice. They share the belief that by some unknown magic their actions cannot have adverse effects because of the social and economic interdependence. The belief just blacks out any notion of the possibility of such interdependence.
The belief of an easy-to-handle one-way relation between political action and social results today is widespread even among so-called conservatives or liberals. Their favorite areas of intervention are technology and vocational training. In full agreement with social-democrates, socialists, and born-again fascists it is said that the state ought to stimulate technological development and vocational training to increase employment. It is believed, for instance, that the state creates jobs by pumping millions into institutions to explore the space. No one asks where the money comes from and which enterprises are thereby drained off their capital resources. Or, it is believed that you can open job opportunities to an uneducated person by supplying vocational training for free because statistics say that unemployment hits low levels of education more than other ones. No one asks what happens if everyone has gotten a higher level of education &endash; although it would be not too sophisticated to guess that just the requirements will be raised. Politics functions by not asking such questions.
The emphasis on technology and vocational training of nowadays is nothing than the new cloth of the older development economics. Development economics were based on the observation that a prosperous industry comes along with certain features called infra-structure like streets, schools and so on. It was concluded that any community would prosper if only the infra-structure was pre-developed by the state. This conclusion was bad empirical science for they took co-incidence for cause. American economist Melvyn Krauss called this development economics "cart-before-the-horse-economics." As Lord Bauer wrote:
"It is not true that a substantial infra-structure is a pre-condition for development. [Š] fact [is] that the infra-structure develops in the course of economic progress, not ahead of it. [Š] Much of the [development] literature suggests that the world was somehow created in two parts: one part with a ready-made infra-structure of railways, roads, ports, pipelines, and public utilities, which has therefore been able to develop, and the other which the creator unfortunately forgot to endow with social overhead capital."
The "little" error in logic of development economics has cost millions of lives in the third world. Although development economics clearly failed in the third world it is now recommended to cure the crisis of the first world. The new name of the game is re-industrialisation. In its left-wing form, re-industrialisation politics means giving tax-money to workers; in its right-wing form, it means to give tax-money to industrial organizations. And both like educational programs. I'm asked to concentrate on the issue of vocational training. I'll do this, but please bear in mind that vocational training is nothing but an example of the wrong notion of development economics: Vocational training is part of the infra-structure omnipotent government is supposed to supply for free.
My thesis is that free vocational training really does not generate employment. If free vocational training raises job opportunities for a specific individual it will be at the cost of other individuals likely to come even of a lower socio-economic status that the individual helped. This thesis grew out of massive empirical evidence. I will quote but one study, a historical study of the evolution of the educational system of the US by sociologist Christopher Jencks and psychologist David Riesmann. They found out:
"The driving force behind support of [public] higher education has always been middle-class parents eager to send their children to college at less than cost."
Although nobody questions the evidence that public education is &endash; in the words of Gordon Tullock &endash; "welfare for the well-to-do," no one wants to listen to the conclusion. Left-wingers normally go on asking for top-down re-distribution even if evidence shows that nowhere the welfare-state succeed to reach this aim. And right-wingers worry about the top-down re-distribution which is nothing but an illusion. What we need is of course a libertarian perspective that transcends the left-right schism.
To explain my thesis that free vocational training does not generate employment I introduce a kind of argument used by Austrian economists. I ask you to look at the micro-economic level where the human action really happens. Take an employer, Lord Smith of Smithonian Industries. He has a job to be done. The job has a specific marginal utility and requires a defined education. The employer, Lord Smith, looks for such a trained person willing to work for the salary offered. The salary offered represents the marginal utility of the job. The clauses "willing to work for the salary offered" and "the salary offered represents the marginal utility of the job" are important. With an economic understanding of the two aspects &endash; the offered salary and the marginal utility &endash; it is possible to demolish the myth of free vocational training.
Let's start with analyzing the meaning of the sentence "the employer looks for a specifically trained person willing to work for the salary offered." First, it means that there is a limit to what Lord Smith would offer the applicant as salary. If there is no limit for the salary, Lord Smith would have no problem finding the searched for person. Now suppose, he does not find someone with the asked for training willing to work for the salary offered. What if the state provides an unemployed person with the needed vocational training? Let's call him John. He is the person whose training is paid for by the state.
1. The first possibility is that John now meets the requirements of Lord Smith and that he agrees to the salary offered. The state provision of training led to a work contract. Everything is fine: Employer and employee both are happy, and they love the state for its action. Or? But as economists we must be more careful in our analysis: The provision of the training results in a lowering of the average salary of this specific level of education. Before the state educated John, Lord Smith was not able to find someone to do his job. That is, those persons able to do the job ask for more payment than Lord Smith can supply. By taking the job, John agrees to get less payment than those others.
This insight leads us to realize a second possibility. This second possibility is that there are special interventions preventing the salary from falling and John is not allowed to accept the offered salary. In this case the training provided for free does not result in a so-called "new" job. This is not at all a trivial statement. In most western countries state or union action require defined salaries for certain vocations and/or certain levels of education. Compare, for instance, the labor market for scholars between the US and Germany: In the US the proliferation of academics resulted in low levels of payment for teachers and university professionals. In Germany the proliferation of academics resulted in unemployed academics because of the rigidities of the salary structure. To be sure, to qualify new teachers in Germany will not open new job opportunities although the employers do not have to pay a penny for the qualification.
2. The state provision of training is, of course, a subsidy to employer Lord Smith and the employee John alike. The question, then, is: Who pays? Because there certainly is no such thing as a free lunch. I won't go too deep into this question, for it is a little bit out of the scope of this paper. But I want to make sure that there is no such thing as a robin hood state conservatives worry about. You can be sure that the mighty and the wealthy get more out of the state than they pay whereas the poor have to pay not only their own lunch but that one of the wealthy, too. Hundreds of empirical studies indicate that the re-distributive effect of public education is not top down but quite to the contrary, from down to top.
But let's turn to the question: Is it really a new job the state trained unemployed John gets from Lord Smith? To answer the question we must turn to the second clause in the sentence, "Lord Smith looks for a trained person willing to work for the salary offered which represents the marginal utility of the job." What does that imply "the salary offered represents the marginal utility of the job"? Suppose the state does not train an unemployed person to fit into Lord Smith's job. And suppose, further, that Lord Smith neither is willing to pay for the training nor he finds someone unemployed able to pay for her- or himself. The clause "the salary offered represents the marginal utility of the job" indicates that some other enterprise is more profitable than the one of Lord Smith if the costs rise above a certain level. The money that does not go into Lord Smith's enterprise goes into another one opening job opportunities there. If the state subsidizes the training so that Lord Smith's enterprise will be done, in fact the total costs will be above the marginal utility &endash; the total costs enclose the salary plus the costs of training. To the economy as a whole it is a loss, that is, aggregate employment is reduced.
Intervention to support vocational training cannot lead the way back to full employment or even to more employment. From the French philosopher, the late Michael Foucault I learned not to be content with saying that politics that does not succeed to reach its alleged aim is grounded in "error." You make a mistake once. If you do it twice, you do it by intention. Every single government program proposed to overcome the crisis is already tested &endash; and failed the test. When rent control was introduced in the 60's to cure the housing problems, it had long ago been refuted on empirical grounds by economists in the 20's. Today they sell us public vocational training programs to overcome unemployment. As early as in the mid-nineteenth century state promoted education was suggested as to advert the economic crisis, for instance in the US. The crisis was used by educational reformers to install the public financed and controlled system of high schools. The American educator Michael Katz who is, I must admit, a Marxist, studies the effects of public higher schooling. He concludes:
"Apparently, in spite of promoters' predictions, the high school had no effect on communal wealth."
It is, of course, the same story as with development economics. Writes Katz of Lawrence, one of the towns he studied:
"The early history of Lawrence also suggests that education was not the driving force in industrial development. The labor power that built and manned the great mills and factories was not the loving hand of the artist-laborer but, for the most part, the untutored efforts of uneducated Irish immigrants and their children."
Obviously, intervention to support vocational training not only doesn't lead the way back to full employment, but it is also not meant to. Who does want full employment? Certainly not the state which would lose much of its raison d'etre if every one is employed. People think that the state is legitimate mostly because it helps the poor and the unemployed. It is rational for government officials to state in the public that they introduce programs to end unemployment, but to take care that the programs will "fail." The alleged failure of the programs in turn will lead to new programs even more expensive. This is what Foucault called the "micro-physics of power:" Those in power unconsciously have the knowledge how to reproduce the structure of power.
Who else want full employment? Probably the unions? The unions just do not care. They want to protect the existing work force. The easy way to protect the income of the employees is to take care not to let new competitors in. But it would give a bad image just to exclude the unemployed. Thus, unions participate in programs to "educate," "train," or "qualify" the unemployed. The more time unemployed stay in those programs the better. But the best result of such a program in the well-realized interest of the unions would be that not work is what follows but the next program.
And what about the employers? They say they are unhappy with the high levels of income protected by forced unemployment and with the high levels of taxation caused by the social programs to help the unemployed. But in reality they are quite happy with the status quo as long as they get enough subsidies to overcompensate for the losses. Especially they want the state to continue to pay for the training of their work force. In the nineteenth century, employers were among the first ones to campaign for public higher education to get the educational costs off their backs.
As educator Joel Spring writes in his history of the educational system in the US in the beginning of the twentieth century:
"It can easily be assumed that corporations which developed their own cooking classes, kindergartens, physical training programs, literary activities, and trade classes would put pressure on their local communities to have the schools assume some of these functions. It was cheaper, of course, for corporations to have present and future workers trained at public expense."
I guess employers will be the last ones to accept privatisation of education or vocational training.
Employers in the training business of course want that the state expands its training programs. For a very brief period I was paid for by some German training companies to introduce a market policy. But quickly the state settled the question by granting them enough money to be quiet again. Because there is no limit to the resources the state can get hold of, the government is able to buy up every opposition in case there should develop any.
I'll give you but one impression &endash; a typical one &endash; of the German vocational training market. It is a good example of the political double-bind. The vocational training market is heavily regulated. The regulations are not enforced by the state directly but by two so-called "independent" institutions. On the one hand there is the federal agency of employment, the Bundesanstalt für Arbeit in Nurnberg. The agency is controlled by party, union, and business representatives. It distributes the money collected from the workers by mandatory social insurance. On the other hand there are the chambers of commerce. The state endowed the chambers of commerce to control the vocational diplomas. The chambers are, to be sure, coercive corporatist institutions, too. As a company you are obliged to become member of such a chamber. You can bet on that these two institutions are rivals. The sets of rules that legislate their actions are partly mutual exclusive. People who want to be trained and companies who offer training are forced to try to obey both sets of rules. Sometimes this is very difficult. The point is: You cannot deregulate the training market just by correcting a law. You have to change a whole set of mighty institutions &endash; institutions backed by the parties, by the unions, by the employers' organizations. Who is left to form an opposition?
Sometimes there is political insight that deregulation would be healthy to the community. But the corporatist institutions normally are quite able to twist any deregulation activity. In Germany we have a new law just enforced that the monopoly of the labor offices is to be broken. Private sector labor offices are allowed to join in. The old istitutional network found a way out. The labor offices of the state, the unions, and the employers' organisations together founded a so-called "private" company. This company also tries to cover areas in the labor market business that formally were exclusive private sector business. Thus, we might end up with more statist intervention after the so-called "deregulation" than we had before. Again, "Who is left to form an opposition?"
You probably already had interfered by what I said that I don't want to be mistaken for a conservative or a liberal. After more than ten years of privatisation, tax reductions and "balancing the budget," conservative rule in Germany, the US and Great Britain has resulted in the biggest government, the biggest spending, and the biggest deficits ever. I'm not to say that social-democrates or socialists will cure this. Rolling back the state cannot be a political task. It is a revolutionary aim.